Even though the conflict in Iraq still rages, with forces from the Islamic State of Iraq and Greater Syria (ISIS) just an hour outside of Baghdad while the Syrian military is reportedly bombing the insurgents, global oil markets have mostly calmed. Prices for Brent crude on June 26 had fallen below $114 a barrel, and have dropped more than 1% since hitting a nine-month high on June 19. The violence in Iraq's north and west—including fighting around the country's largest refinery in Baiji—hasn't yet seriously affected oil production in the Shiite dominated south. Iraq's Oil Minister Abdul Kareem al-Luaibi even promised in an interview with Bloomberg that the nation's oil exports—which have averaged more than 2.5 million barrels a day—will actually accelerate next month. "Oil exports will witness a big increase, as recent events didn't reflect negatively on Iraq's crude output and exports," al-Luaibi said. "International oil companies are working normally in Iraq."
That doesn't seem to be quite true, though—international oil majors like BP and ExxonMobil have already evacuated some of their foreign workers from Iraq. And if things do get worse, oil markets might not react so calmly. A recent report from the nonprofit Securing America's Future Energy found that the loss of just a third of Iraq's oil output could be enough to push global oil prices up as much as $40 per barrel. Even if production from Iraq stays steady, political turmoil in countries like Libya and Nigeria have helped remove some 3.5 million barrels a day of oil production capacity. That doesn't leave much room for more trouble in Iraq, the world's third-largest exporter of crude oil. And with Iraq projected to be the biggest single contributor to new oil production over the coming decades—at least before the ISIS insurgency revved up—what happens in the country will matter at the pumps for a very long time.
But it's not so easy to predict the future of energy and oil. Case in point: the fracking revolution in the U.S., which has unlocked vast amounts of previously inaccessible crude, and which few experts saw coming. Between 2008 and 2013, U.S. oil production increased by 2.4 million barrels a day, to more than 7.4 million. And the growth hasn't stopped—production hit 8.3 million barrels a day in April. Most of the new global oil production brought online over the past few years has come from the U.S. While the U.S. doesn't export raw crude—aside from a few small exceptions, U.S. oil exports have been banned since 1975—more oil at home means fewer imports, which in turns leaves more oil on the global market for everyone else. Take away the fracking revolution, and global oil markets wouldn't have been able to so easily shrug off the violence in Iraq.
In the years to come, the U.S. could play an even bigger role. As the Wall Street Journal and Reuters reported earlier this week, the Obama Administration has begun taking steps towards allowing U.S. crude exports. If that wording sounds confusing, well, it is. What seems to be happening is that the U.S. Commerce Department will allow a pair of oil companies to begin exporting what is known as ultra-light condensate to international markets, with only minimal refining. (The U.S. has long allowed exports of refined oil products.) That doesn't mean U.S. oil companies can begin exporting all the crude they want; in fact, both Commerce and the White House, reflecting the political sensitivities around allowing domestic exports at a time when gasoline costs an average of $3.68 a gallon, have insisted that there has been "no change in policy on crude oil exports."
But with domestic oil production approaching the capacity of U.S. refineries—and the oil industry putting all its considerable pressure on the government—it seems likely that U.S. oil will eventually be sold abroad. What effect that will have domestically is uncertain. A recent report by Goldman Sachs found that the ban on exports was a net economic positive for the U.S., at least until domestic refineries could no longer handle growing production of oil. But it seems clear that lifting or at least modifying the ban would likely lead to more production, as oil companies wouldn't have to worry about their product being landlocked in the U.S. A report by the research firm IHS found that lifting the ban would lead to more than $700 billion in additional investment in oil extraction between 2016 and 2030, and would increase oil production by an average of 1.2 million barrels a day. And given that global crude demand is expected to rise by about that much over the next several years, that oil could be very useful indeed—especially if today's fighting in Iraq is only the beginning.